The government believes that the new Form 26AS will hand-hold income-tax payers to e-file their income-tax returns quickly and correctly. One significant change in the new Form 26AS — which has been effective from June 1, 2020 — is that it would alert the taxpayer about his or her large financial transactions through the year. This is mentioned in the statement of specified financial transactions (SFTs).
What is it?
Specified financial transactions are certain high-value transactions undertaken by citizens that the Government proposes to track with an intent to curb black money and widen the tax base in India.
The Government of India already requires certain persons and entities to report high-value transactions undertaken by ordinary folk to the Income Tax department. The entities charged with such reporting are banks, mutual funds, institutions issuing bonds and registrars or sub-registrars which file a statement with the I-T department on financial transactions such as cash deposits/withdrawals from savings bank accounts/term deposits amounting to ₹10 lakh or more, credit card payments by cash of ₹1 lakh or more, purchases of shares, debentures, foreign currency, mutual funds, buyback of shares amounting to ₹10 lakh or more, expense in foreign currency of ₹10 lakh or more and sale/purchase of immovable property with transaction value of ₹30 lakh or more, under Section 285BA of Income Tax Act, 1961. The threshold limits mentioned above are the aggregate value of all similar transactions in a financial year.
The government recently proposed to expand the scope of reporting of SFTs by including new high-value transactions, such as domestic business-class air travel/foreign travel; payment of educational fee/donations; purchase of jewellery, white goods, paintings, marble and electricity consumption above ₹1 lakh; payment of life insurance policy above ₹50,000; hotel spends; and payment of health insurance premium more than ₹20,000. Collecting these details will not be a tall ask, as the seller or service provider of most of these transactions have been already noting the PAN number of the taxpayer — as mandated by the Income Tax Act — after a certain threshold of the transaction value.
Having said that, there has been no official notification yet from the I-T department on the inclusion of these transactions under SFTs.
Why is important?
As per the I-T department’s notification in May 2020, SFTs will be part of the new Form 26AS.
For the uninitiated, earlier the Form 26AS used to give information about the tax deducted at source, tax collected at source, details of refunds, tax defaults and other taxes paid by a taxpayer.
Besides SFTs, now the new Form 26AS also includes other details such as the name of the institution (or person) reporting the details pertaining to the above-mentioned transactions, the dates of transaction, number of parties involved in the transaction, mode of payment and others. When you file your return, your income and tax payment details should be in line with Form 26AS. The I-T department verifies if the income disclosed in the return is not commensurate with the expenses reported via SFTs.
This SFT information will be of immense use to the taxman to cross-verify suspicious transactions.
Why should I care?
Having all the SFTs mentioned at one place in Form 26AS helps you as a taxpayer to recall all your major financial transactions while filing the income tax return. This prevents any inadvertent non-disclosure of income.
The other intent of the government in including SFTs in Form 26AS is to discourage taxpayers who conceal financial transactions in their returns. It’s a heads up from the government that the taxman has been tracking your big transactions.
With big data, there’s no place to hide from the taxman.
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